In part one, I shared with you the importance of having vision as the foundation of building your business plan. Every real plan has to begin with vision. Without it, there is no specificity, but only a nebulous general direction and not a quantifiable destination.
If you haven’t taken the time to get alone someplace quiet to build your vision for next year, please go back and reread part one and then take the time for this vital step. Vision is absolutely critical to your plan. Now let’s talk about the second and final step.
Step Two — Reverse Engineering
Alright, by now I trust that you’ve done your homework and you’ve taken the time to get a clear picture of your dream practice. I’m also confident that you have all the details clearly in your mind’s eye and have written them all down to refer to later. Good. Now let’s do some reverse engineering. What’s that?
Reverse engineering — the process of discovering the technological principles of a system through analysis of its structure, function and operation.
Wow! That’s a mouthful. Let me put it in more practical terms: Take the finished product and back into the individual component parts required to get there. Or in other words, look at the end result, and then calculate the individual steps or pieces that go into arriving at that result.
This methodology is the single best way to build a business plan for your real estate practice. It’s not flashy, nor is it particularly impressive. It is not meant to be. It is practical. It’s just a road map of how you get from from point A (where you are now) to point B (where you want to be in your vision). Just how detailed should you be?
Detailed road maps are great if you’re working for Rand McNally, but for our purposes, you probably only need to sketch a very simple map with only the details you need to get you to your vision. It’s quite possible that nobody else could even read your map, but so what? It is not for anyone else, it’s for you.
Now, because this process will be highly personal, you’ll have to supply your own finished “vision” (or your goal real estate practice), but so we can work on this together, I’ll show you the steps in an example. Remember — this isn’t meant to be a substitute for your own vision. It’s just an example so that you’ll be able to follow along and know what to do when you do build your own business plan.
For years, whenever I’ve taught agents on the subject of business planning, I’ve walked them through a lot of math and watched (or maybe I’ve just imagined) their eyes rolling back into their heads when we started getting out the paper and pen. So, I finally decided if agents were going to do it, I had to make it easy. I developed a business planning calculator that will make it super simple.
To use it, click on this link that will take you to the calculator on my blog. Now it asks you to answer five questions and then to make three assumptions. The calculator does all the math, behind the scenes and then gives you a step-by-step plan of action.
Let’s do one together. What is your desired annual income? Let’s use $100,000. Next time through you can choose whatever is in your vision. What’s the average sale price in your market? Your local association should be able to tell you that number if you haven’t already calculated it on your own. For this illustration, we’ll use $200,000 for our average sale price because it is close to the national average.
Next, we need the average commission percentage per transaction side. Every market is different, and mine is 3%. But nationally it is 2.6% of the sale price, so we’ll use that for this example. Now we need your agent split, or the amount of the commission you keep after paying your company. The national average agent split is 62%, our company pays 85% on average, and yours may well be higher or lower. Let’s use 70% for purposes of this example.
Finally, we need to decide what percentage of your business will be “buyer-side” business. As a very successful listing agent and the guy that has written several books on “The Ultimate Listing Presentation”, you would expect me to recommend that you focus on listing, but I won’t. In fact, unless you want the freedom to take off weekends that comes from listing and being able to schedule your work days around your calendar and not your clients, I would recommend you work with buyers.
I think every agent ought to focus on whatever business he wants to do, whether that means listing or not. You should never do listings simply because somebody told you that you had to to survive in this business. I recommend all new agents that they work 100% on the buyer-side because it produces more immediate income. Listings are like a savings account where working buyers is more like a checking account.
For this illustration, let’s use 100% buyer-side business, but I encourage you to go back and try it using different assumptions and different listing/selling mixes. You will be amazed at how simple changes, like your average sale price, your percentage of buyers versus sellers, or your company split, can drastically affect your work load, how many leads you need, and your income.
Now all we need to do is answer the three assumptions. The national average number of leads needed per closing is 24. My own number was closer to 16. Yours might be higher or lower, and only time will tell. As you get better, your number will get lower. For our purposes, we’ll use the national average of 24. Let’s also agree to take two weeks off and work 50 weeks, and let’s assume we will work at an efficiency rate of 75%. The more interruptions you get, and the less disciplined you are, the lower that number will be.
Now let’s look at the results from our Business Planning Calculator:
Meaningful prospecting calls: 25 hours a week (or 54% of our work week);
Wasted prospecting calls (no answer, bogus, etc.): 3 hours a week (or 7% of our work week);
Listing activities: none (or 0% of our work week);
Buyer side activities: 8 hours per week (or 17% of our work week);
Escrow activities: 3 hours every week (or 7% of our work week);
Administrative activities: 7 hours a week (or 15% of our work week);
Estimated average work week: 46 hours a week (or 100% of our work week).
This is what business planning is all about! Believe me, doing it the hard way with pen, paper, and calculator is very time consuming. And trying different scenarios takes forever! But, whether you use a calculator like this one, or whether you figure it out long-hand, you must plan your work, then you must work your plan.
Notice anything that stands out? Real estate has changed. The age of going out all over town to hustle up business is over. Lead generation should be on autopilot, allowing you to spend your time actually working those leads you produce. According to this sample plan, you will need 936 leads throughout the year to accomplish your goal. Doing real estate the old way would make that number an impossibility, but using current lead generation strategies, it is not only possible, but it is pretty easy to accomplish.
When I was a brand new agent, I built this same kind of business plan. That was before I built the Business Planning Calculator, so it took forever. But, because of the focus it gave me, I was able to spend a lot of time in my office with my door closed, talking on the phone. Well, many of my fellow agents spoke disparagingly about how I couldn’t (and shouldn’t) do real estate in my office. I told them that I couldn’t do real estate away from my office. I told them that, if I weren’t with a client, showing or listing a home, I would be in the office and on the phone. There’s too much to do!
Now let me ask you a question: wasn’t that easy? Building your own business plan should be easy! First you need to take the time to build your dream — your vision. Then you need to begin to share that vision with those around you. Realize that many of your fellow agents will pooh-pooh your plan, but that’s because it’s easier to find fault with your plan than it is to build plans of their own. But don’t let those around you tell you what to do.
Build your plan, then follow your plan. If you do, you’ll be very successful. Even in a tough economy. You’ll see!